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Friday, September 12, 2008

Demat details and benefits

In India, a demat account refers to dematerialised account.Just as you have to open an account with a bank if you want to save your money or make cheque payments etc, in the similar manner, you need to open a demat account if you want to buy or sell stocks. So, demat account is just like a bank account where actual money is replaced by shares. The dematerialised account is used to avoid holding physical shares: the shares are bought and sold through a stock broker. Let's say your portfolio of shares looks like this: 40 of Infosys, 25 of Wipro, 45 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. It should be noted demat account is a must for trading and investing.

The benefitsA safe and convenient way to hold securitiesImmediate transfer of securitiesNo stamp duty on transfer of securitiesElimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etcReduction in paperwork involved in transfer of securitiesReduction in transaction costNo odd lot problem, even one share can be soldNomination facilityAutomatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.Holding investments in equity and debt instruments in a single account

ProcedureA depository is a place where the stocks of investors are held in electronic form. The depository has agents who are called depository participants (DPs).

Think of it like a bank. The head office where all the technology rests and details of all accounts held is like the depository. And the DPs are the branches that cater to individuals. There are only two depositories in India - the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). There are over a 100 DPs.The extent of documentation required to open a demat account may vary according to your relationship with the institution. If you plan to open a demat account with a bank, a savings, current and, or other account for which the holder have been issued a check book, such holder has an edge over the non-account holder. In fact, banks usually offer additional incentives to customers who open a demat account with them. Along with the application form, your photographs (with co-applicants) and proof of identity/residence/date of birth have to be submitted. The DPs also ask for a DP-client agreement to be executed on non-judicial stamp paper. Here is a broad list:

A canceled check, preferably MICRProof of IdentificationProof of AddressProof of Pan card (mandatory)Recent photographs, one and, or more

For proof of identification and, or address self-attested facsimile copies of PAN card, Voter’s ID, Passport, Ration card, Driver’s license, Photo credit card, Employee ID card, Bank attestation, latest IT returns and, or latest Electricity/Land line phone bill are sufficient. While they only ask for photocopies of the documents, they will need the originals for verification.Important PointsA demat account can be opened with no balance of shares. And there is no minimum balance to be maintained either. You can have a zero balance in your account.The charges for account opening, annual account maintenance fees and transaction charges vary between DPs.You can nominate whoever you like by filling up the nomination details in the account opening form. This is to enable the nominee to receive the securities after the death of the holder of the demat account.When you open an account, the DP will allot a unique BO ID (Beneficial Owner Identification) Number- which you need to quote for all future transactions.If you want to sell your shares, you need to place an order with your broker and give a 'Delivery Instruction' to your DP. The DP will debit your account with the number of shares sold. You will receive the payment from your broker. If you want to buy shares, inform your broker about your 'Depository Account Number', so that the shares bought are credited into your account. (Source – goggle)